Consumers

October 16, 2014

No one is immune to bankruptcy – it can affect anyone, including celebrities. In fact, a startling number of the “rich and famous” have filed for bankruptcy for relief from their debts. There are many reasons why someone famous might file for bankruptcy, including overspending, divorce, legal issues, contract disputes, bad investments, and declining income due to the fading of their celebrity “star power.” In some cases, celebrities delegate financial management and tax preparation to advisors or investors who may prove to be inept or even criminal, leading otherwise financially solvent people into insolvency. Additionally, many people, including celebrities, do not have the ability to spend less than they earn, or are naïve about how to cope with a sudden increase in wealth. For example, since 2006, when the Bravo Network first began airing the “Real Housewives” series, at least six of the sixty-seven cast members (9%) have filed for bankruptcy.

You may be surprised to learn that even widely known celebrities with long, apparently lucrative careers have experienced bankruptcy. Following are some celebrities who have filed ---

Other notable names: David Adkins (aka “Sinbad”), Janice Dickinson (self-proclaimed “First Supermodel), Arsenio Hall, Vickie Lynn Hogan (better known as Anna Nicole Smith) and Suge Knight. After being criminally acquitted for the murder of her daughter in 2011, Casey Anthony also filed for bankruptcy.

Given the subjective definition of who would be considered to be a “celebrity,” it is difficult to determine the exact number of celebrities who have filed for bankruptcy. The aforementioned listing of celebrities is therefore not exhaustive. For more information about financial affairs and legal matters, contact skilled and experienced bankruptcy counsel.

Image credit: Pixabay (image of American actress Veronica Lake, who filed for bankruptcy in 1951)

September 17, 2014

Senator Sheldon Whitehouse (D-RI) is sponsoring a Senate Bill, along with Co-Sponsors Senator Elizabeth Warren (D-MA) and Senator Richard Durbin (D-IL) to amend the U.S. Bankruptcy Code to allow certain types of debtors to have higher exemption amounts and discharge student loans. The proposed date that the Act will take effect is the date of enactment of the Act.

The name for the proposed amendment is the “Medical Bankruptcy Fairness Act of 2014.” It states that ‘medical debt’ is any debt incurred voluntarily or involuntarily as a result of the diagnosis, cure, mitigation, or treatment of injury, deformity, or disease of an individual, or for services performed by a medical professional in the prevention of disease or illness of an individual.

The proposed Bill states that a ‘medically distressed debtor’ is a debtor who, during the 3 years before the date of the filing of the petition, incurred or paid aggregate medical debts for the debtor, a dependent of the debtor, or a nondependent parent, grandparent, sibling, child, grandchild, or spouse of the debtor that were not paid by any third-party payor and were greater than the less of either 10 percent of the debtors gross income or $10,000.

A ‘medically distressed debtor’ may also be someone who did not receive domestic support obligations, or had a spouse or dependent who did not receive domestic support obligations of at least $10,000 due to a medical issue of the person obligated to pay medical debts.

A ‘medically distressed debtor’ may also be someone who experienced a change in employment status that resulted in the reduction of wages, salaries, commission, or work hours or resulted in unemployment due to an injury, deformity, or disease of the debtor, or the care for an injured, deformed, or ill dependent or nondependent parent, grandparent, sibling, child, grandchild, or spouse of the debtor.

We do not know if this proposed legislation will find sufficient support for its eventual passage, but keep reading our blog posts for updates on the progress of this proposed Amendment.

For more information, be sure to consult with skilled bankruptcy counsel.

August 13, 2014

Massachusetts Governor Deval Patrick signed the state’s Fiscal Year 2015 budget bill. The bill authorizes a tax amnesty program, along with other business tax changes.

The budget contains significant new provisions. Specifically, the budget contains a tax amnesty program that will run for two consecutive months within Fiscal Year 2015. Which two months are yet to be determined. The program holds that all penalties assessed against a taxpayer for past due taxes will be waived if the taxpayer pays any outstanding tax liabilities by June 30, 2015. The program applies to a wide range of taxes, including:

Sales and use tax

Sales tax on telecommunications services

Meals tax and meals tax local option

Personal income tax withholding

Pass-through entity withholding

Deeds excise tax

Convention center financing fees on room occupancy in certain cities

Gasoline and special fuels excises

The program holds that if a taxpayer does not pay the full liability before the amnesty deadline of June 30, 2015, Massachusetts will retain any payments made and apply them against the taxpayer’s existing tax liability and penalties.

Also, any taxpayer who participates in the amnesty program may not engage in a future state tax amnesty program for the next 10 consecutive years, beginning in 2015.

August 06, 2014

According to a consumer protection agency known as the Federal Trade Commission (FTC), family members are usually not required to pay the debts of deceased relatives. In fact, the Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using abusive, unfair, or deceptive practices to try to collect a debt. According to the FDCPA, a debt collector is someone who regularly collects debts owed to others.

When someone passes away, the debt of the person who died does not go away. Instead, the estate of the deceased person covers the debt. If there is not enough money in the estate to cover the debt, the debt goes unpaid. Exceptions to this rule include debt incurred if you: co-signed an obligation; live in a Community Property state (Massachusetts is not a Community Property state); are the deceased person’s spouse and state law requires payment; or were legally responsible for resolving the estate and didn’t comply with certain state probate laws.

It is important to note that even when you’re not legally responsible to pay the debts of a deceased relative, a creditor may take what a relative intended to leave for you. For example, unless you are listed as a beneficiary of a 401(k) or an IRA, your money can be taken by creditors for unpaid debts.

Other important bits of information regarding debt after a relative passes away: You are not responsible for your deceased relative’s credit card debt unless you are a cosigner. A state may recover Medicaid payments from age 55 to the relative’s death, but a state may not ask you to foot the bill or pursue payments of your surviving spouse. If you inherit a home with a mortgage on it, the lender may not demand that you pay off the mortgage immediately.

Generally, the person named in the will who is responsible for settling a deceased person’s affairs is known as an executor. If there is no will, the court may appoint an administrator, personal representative, or universal successor, and allow the person to settle the affairs.

Under the FDCPA, a collector may contact and discuss a deceased person’s debts with that person’s spouse, parent(s) (if the deceased is a minor child), guardian, executor, or administrator. The FDCPA permits collectors to contact any other person authorized to pay debts with assets from the deceased person’s estate. Debt collectors may not discuss debts of deceased persons with anyone else.

If a debt collector contacts a deceased person’s relative, the collector may only contact a third party to learn the name, address, and telephone number of the person authorized to pay the deceased’s debts. One exception to this general rule is that a collector may call again if the collector reasonably believes that the information provided initially was inaccurate or incomplete, and that the third party now has more accurate or complete information. This being stated, a collector cannot say anything about the debt to the third party.

When faced with the loss of a family member, don’t handle these affairs alone. Be sure to consult with skilled counsel.

July 30, 2014

According to the National Association of Realtors, the percentage of first-time buyers in the housing market today is 29 percent. For many students, substantial student loan debts prevent them from entering the real estate market to take advantage of the current historically low mortgage rates.

Students’ loan debts play a significant role in the current mortgage market. Specifically, student loans are reported to credit reporting agencies and are a factor in qualifying for a mortgage loan. Students with a large amount of debt will likely not qualify for a mortgage.

According to Bernard Weinstein, Ph.D. and Adjunct Professor of Business Economics at Southern Methodist University, the total balance of outstanding student loans exceeds $1.1 trillion, an amount greater than all existing credit card debt. In addition, according to Dr. Weinstein, the average amount owed at graduation by students with a bachelor’s degree has jumped from $10,000 to $40,000, while the average balance for graduate students has increased from $18,000 to $56,000. Also, delinquency rates on students’ loans have doubled to 12 percent over the past eight years while the rates have fallen on credit cards, mortgages, and auto loans.

According to Bennie Waller, Ph.D. and Professor of Finance and Real Estate at Longwood University, students must realize the financial consequences of debt, which include student loans. All borrowed funds must be repaid. Dr. Waller states that students must recognize that the funds must be repaid when choosing to pursue an advanced degree.

Dr. Weinstein suggests that over the long term, more job creation and higher real incomes for younger workers offer the best hope for securing a mortgage and boosting home purchases.

Be sure to consult experienced legal counsel for questions and concerns.

July 02, 2014

In March of 2014, a 51 year old Kentucky woman, Sheryl Bruner, was found guilty of defrauding the Social Security Administration, bankruptcy fraud, and money laundering. The federal jury found that Bruner fraudulently claimed that she was disabled and had no funds or income. Despite having more than $1 million dollars in assets, Bruner filed for bankruptcy in 2013.

Bruner, already in jail for federal charges of bankruptcy and Social Security fraud, has pleaded guilty to defrauding the Kentucky Medicaid Program. She has agreed to an 18-month prison sentence, to pay $550,000 in restitution and to forfeit $223,028 in cash to the state.

Defrauding the Social Security Administration is costly. Take a lesson from the Sheryl Bruner story: do not file for bankruptcy to hide your assets, and do not claim to have no funds or sources of income if you do have the funds.

June 26, 2014

Approximately 65% of Americans will receive a payment from a pension, an inheritance, or a lawsuit, at least once in their lives. The wealth from a large payment causes many people to feel as though they have more money to spend. They spend the money quickly, often rushing to purchase a new home or car, an expensive vacation, or other nonessentials. These purchases add up and may cause people to file bankruptcy.

For example, 78% of NFL players, men who receive large sums of money, eventually file for bankruptcy or suffer severe financial hardship. Although many people wish for wealth, the unfortunate truth is that most people find that sudden wealth actually ruins their lives.

The question becomes, “What should you do when you receive a large sum of money?” The answer: be patient.

Rather than rushing to purchase a large home, a sports car, an expensive vacation, or other luxuries, you should refrain from increasing your standard of living for at least one year. Be patient. Rather than embracing the power trip of your new wealth, a rush that may be addictive, you should gain control of your emotions. Confront your feelings, and deny your impulse to spend. Fight the temptation. Rather than spending the money, keep it in a secure and inaccessible account to help you to resist the temptation of spending it.

It is important to maintain a well-thought out plan. If you have a plan, stick to it. Don’t rush. The more time that you give toward planning your finances, the better off you will be.

In sum, if you receive a large sum of money, do not rush to spend it. Bankruptcy could ensue. Instead, be patient. Consult with legal counsel or an experienced financial advisor for more information.

June 04, 2014

Emotional distress damages are recoverable for a violation of an automatic stay. An automatic stay is an order that halts all actions by creditors to collect debts from a debtor who has declared bankruptcy. 11 U.S.C. § 362(k) allows a party to recover “actual damages” for a willful violation of an automatic stay.

In Lodge, the plaintiffs owned a home subject to a mortgage. One of the owners filed for bankruptcy, which resulted in an automatic stay against all actions to collect on the loan or enforce the mortgage lien. Although there was a stay, the mortgage holder continued to proceed with the foreclosure. The plaintiffs argued that they did not have notice of the foreclosure. They did not claim to suffer any economic loss as a result of the violation of the stay. Although the circumstances in the Lodge case did not allow damages to be recovered, in this particular instance, the court’s decision is important for future claims of relief.

For creditors involved in a bankruptcy, this change is significant. Now, emotional distress claims may be brought by individuals involved in bankruptcies.

Never proceed with any legal action after learning that a bankruptcy was filed without first consulting with skilled bankruptcy counsel.

May 28, 2014

Imagine that you and your fiancé paid for your wedding venue, only to have that venue become bankrupt and closed. For many couples without wedding insurance, their money paid to a wedding venue that eventually declares bankruptcy is lost.

In 2013, the average wedding budget was $29,858. For many people, $20,000-$30,000 is a couple’s life savings. With wedding venues offering all-inclusive packages, the loss is often not only their reception venue, but also their DJ, florist, food, and other services. The couples who suffer this loss usually have very little recourse to regain funds associated with the venue.

How may a couple avoid this loss? The answer is wedding insurance.

Wedding insurance costs well under $1000, “maybe $250,” or even only $160. Wedding insurance saves the couple, who would have otherwise lost their partial or full deposit(s) for their wedding by reimbursing the couple for payments made toward the wedding. Wedding insurance policies often cover any deposits lost if the date changes, or the officiant or deejay is unavailable.

In addition to purchasing wedding insurance, it may also be beneficial to pay vendors with a credit card because The Fair Credit Billing Act allows consumers to file a dispute if a product or service purchased was not delivered as originally agreed.

Be wary of businesses that ask you to pay for the venue, service, or product in full. Be sure to ask if the business offers a payment plan to ensure that you won’t suffer a loss of the money should the business declare bankruptcy.

May 21, 2014

On May 6th, Senator Elizabeth Warren introduced a new bill in the senate that would reduce interest rates for many federal student loans. The bill is targeted at student loans issued before July 2013, which have a significantly higher interest rates than those issued today.

Senator Warren indicated that “many people who took out student loans before July 1 of last year are locked into a rate of nearly 7 percent. Older loans run 8 percent, 9 percent, and even higher.” Her new bill would allow borrowers to lower the interest on these loans to current rates: “3.86 percent for undergraduate loans, 5.41 percent for graduate loans, and 6.41 percent for PLUS loans.”

She also noted that the federal government is bringing in huge profits on student loans; for example, “[t]he GAO recently projected that the government will bring in $66 billion just on the slice of student loans from 2007 to 2012. Those are the kinds of profits that would make a Fortune 500 CEO proud.”

Warren indicated that the federal government should not be using student loans as a money-making measure, but rather a vehicle to invest in students’ future. She expressed a goal of reducing student loan rates to a point where the government would not earn any profits from the student loan program. “Forty million borrowers in this country have student loan debt, and many of those individuals could save hundreds or even thousands of dollars a year with this bill. They need this help now.”

Student loan debt is exceedingly difficult to discharge through the bankruptcy process, and therefore, can often impose a large burden on individuals experiencing tough financial times. If enacted, Warren’s bill could serve to reduce at least some of that burden.